Sakhalin Energy Investment Co. (SEIC) has warned of sharply higher costs for Phase 2 of the Sakhalin II project in Russia’s Far East, according to Royal Dutch/Shell Group, parent of the lead partner.
SEIC said Phase 2 costs might reach $20 billion, twice its earlier estimate for costs of the entire Sakhalin II project.
The estimates remain subject to review by SEIC and its shareholders, which “are focused on aggressively pursuing mitigation options,” Shell said.
SEIC comprises Shell Sakhalin Holdings BV 55%, Mitsui Sakhalin Holdings BV 25%, and Mitsubishi Corp. subsidiary Diamond Gas Sakhalin BV 20%.
The $20 billion estimate covers all planned development activity, including drilling through 2014, and LNG deliveries starting in the summer of 2008. SEIC is working with Russian authorities to review revised plans and budgets, Shell said.
“SEIC currently has over 75% of its LNG capacity sold under long-term contracts and is in negotiation with buyers for the balance of production capacity,” Shell said.
Sakhalin II’s reserves are estimated at 17.3 tcf of gas and 1 billion bbl of oil. SEIC’s provisional cost revisions mean a project development cost of $5-6/boe and include the LNG plant.
SEIC’s earlier cost estimate came in a May 15, 2003, statement that said, “The Sakhalin II development represents the largest single foreign direct investment project in Russia, requiring an investment of approximately $10 billion.”
Project details
Sakhalin II will facilitate year-round oil and gas production in northern Sakhalin Island by piping it through two large-diameter onshore oil and gas pipeline systems to ice-free ports in southern Sakhalin (OGJ, Apr. 26, 2004, p. 22). Phase 2 involves development of Lunskoye gas and condensate field and further development of Piltun-Astokhskoye (PA) field-an oil reservoir with associated gas off northern Sakhalin Island.
In addition, Phase 2 includes 800 km of dual oil and gas pipelines from the fields, a liquefaction plant-Russia’s first-and an LNG export terminal in southern Sakhalin Island near Korsakov.
The LNG plant will have two trains with a combined production capacity of 9.6 million tonnes/year. It is scheduled to begin operation in 2007.
Sakhalin I development
Separately, Exxon Neftegaz Ltd. (ENL), operator of the Sakhalin I project in the Russian Far East, reported it and partners have drilled 10 extended-reach wells out of a total of 30 planned for Chayvo offshore oil and gas field.
The onshore Yastreb rig, operated by Parker Drilling Co., drilled the first 10 wells to the field 5-6 miles offshore in the Sea of Okhotsk. The horizontal wells are completed in Miocene sands at depths of about 8,500 ft.
The remaining 20 wells will be drilled from the Orlan concrete island drilling structure to be installed in Chayvo field before the end of summer.
ENL plans to produce 12.5 million tonnes/year of oil from Chayvo. After onshore processing near the Yastreb rig, oil will flow through a 24-in., 136-mile pipeline across the Tatar Strait to an export terminal near De Kastri.
ENL said production of natural gas would begin this fall, while oil production will begin in 2006.
The Sakhalin I project involves Chayvo, Odoptu, and Arkutun-Dagi fields, with total reserves estimated at 2.3 billion bbl of oil and 17.1 tcf of gas.
ENL holds 30% interest in the Sakhalin I project; other consortium members are Japan’s Sakhalin Oil & Gas Development Co. Ltd. 30%, India’s ONGC Videsh Ltd. 20%, and Russian firms Sakhalinmorneftegas-Shelf 11.5% and RN-Astra 8.5%. ✦
